Australian Central Bank Keeps Interest Rate at 7.25%

The Reserve Bank of Australia left interest rates unchanged today for the first time in three months as it gauges fallout from a global credit squeeze that has forced central banks around the world to cut borrowing costs.

Governor Glenn Stevens kept the overnight cash rate target at 7.25 percent in Melbourne, after quarter point increases in March and February to cool the fastest inflation since 1991.

The nation's currency fell as investors bet Stevens' next move may be to cut borrowing costs as the economy slows in the face of the worst stock market slump in 20 years and waning consumer confidence. Stevens said the benchmark rate is now ``appropriate'' to slow the fastest inflation rate in almost two decades.

Today's rate decision follows the first back-to-back monthly increase in more than four years on March 4. The Reserve Bank has added 100 basis points to Australia's benchmark rate since August, even as counterparts in the U.S., Canada and U.K. cut borrowing costs to cushion their economies from slowing global growth.

Australia's All Ordinaries Index slumped 16 percent in the three months to March 31, the worst quarter since the end of 1987, when it tumbled 41 percent. The benchmark S&P/ASX 200 Index, which dates back to 1992, has lost the same amount to record its worst quarter.

Surging mortgage costs, as well as higher fuel and food prices, are forcing consumers and businesses to review spending plans. Sales of newly built homes fell in February, a report showed yesterday.

Retail-sales growth stalled in January after rising for seven months, consumer confidence plunged to the lowest level in almost 15 years in March, and business sentiment in February held close to the weakest level since the September 2001 terrorist attacks.

Growth in Australia's $1 trillion economy slowed to 0.6 percent in the December quarter from the previous three months, when it expanded 1.1 percent.

Concern that the lowest unemployment in 33 years, and an economic expansion now in its 17th year, are stoking inflation was a key reason the central bank raised the benchmark rate by 25 basis points last month.

Annual core inflation surged to 3.8 percent in the fourth quarter, the fastest pace since 1991. The government will publish its first-quarter consumer prices report on April 23.

TradingEconomics.com, Bloomberg4/1/2008 7:02:32 AM

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